Question

The Alpine House, Inc., is a large retailer of snow skis. The company assembled the information shown below for the quarter ended March 31:

	Amount
Total sales revenue	$	1,452,000
Selling price per pair of skis	$	440
Variable selling expense per pair of skis	$	46
Variable administrative expense per pair of skis	$	17
Total fixed selling expense	$	135,000
Total fixed administrative expense	$	110,000
Beginning merchandise inventory	$	75,000
Ending merchandise inventory	$	105,000
Merchandise purchases	$	310,000
Required: 1. Prepare a traditional income statement for the quarter ended March 31 2. Prepare a contribution format income statement for the quarter ended March 31 with variable and fixed expenses 3. What was the contribution toward fixed expenses and profits for each pair of skis sold during the quarter? (Round your final answer to nearest whole dollar amount.)

Answer 1

Question 1

Traditional Income statement for the quarter ended mar 31

Particulars	Amount
a. Sales revenue	$1,452,000
b. Cost of goods sold (Refer working note -1)	$280,000
c. Gross profit = (a - b)	$1,172,000
d. Selling expenses (Refer working note -3)	$286,800
e. Administrative expenses (Refer working note -4)	$166,100
f. Net profit (c - d - e)	$719,100

Working Note -1

Cost of goods sold / Direct material consumed

= Opening Inventory + Purchases - Closing / ending Inventory

= $75,000 + $310,000 - $105,000

= $280,000

Working Note -2

Number of skies pair sold during the quarter = $1,452,000 ÷ $440 = 3,300 pair of skies

Working Note -3

Variable selling expenses = 3,300 pairs x $46 = $151,800

Fixed selling expenses = $135,000

Total selling expenses = $286,800   

Working note -4

Variable administrative expenses = 3,300 pairs x $17 = $56,100

Fixed variable expenses = $110,000

Total Administrative expenses = $166,100

Question 2

Contribution format income statement for the quarter ended March 31

Particulars		Amount
a. Sales revenue		$1,452,000
b. Variable cost:
Direct material (Refer working note -1)	$280,000
Selling expenses (Refer working note -3)	$151,800
Administrative expenses (Refer working note -4)	$56,100
Total variable cost		$487,900
c. Contribution margin (a - b)		$964,100
d. Fixed cost
Selling expenses	$135,000
Administrative expenses	$110,000
Total fixed cost		$245,000
e. net profit (c - d)		$719,100

Question 3

Contribution toward fixed expenses and profits for each pair of skis sold during the quarter:

Contribution margin per pair of skies = $964,100 ÷ 3,300 pairs = $292

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